Once Idealistic, Crowdfunding Is Now an Unholy Hybrid of Retail, Investment, and Risk

Monday, April 27, 2015

Dave Bogaty is a coffee junkie. He exclusively buys his beans from a small-batch roaster in Brooklyn and scouts out local varieties in every new city he visits.

So when the Massachusetts native and former Google software engineer saw a commercial-quality home espresso machine showcased on the “coffee@google” mailing list back in December of 2011, he immediately went to crowdfunding website Kickstarter to snag one for $250. ZPM Espresso, the maker of the machine, had raised nearly $370,000 in a matter of days.

More than three years later, Bogaty has completely given up on ever seeing that coffee machine. Or his $250. After raising additional funding from private investors and selling pre-orders of the nonexistent machine through its own website, ZPM pushed back delivery dates for three years.

Finally in January 2015, ZPM alerted backers the company had folded and “will most likely be unable to offer refunds,” according to an email reviewed by Quartz.

Bogaty mostly shrugs off the lost money (and he still hasn’t bought a home espresso machine). But he tells Quartz he worries his experience may become more common as crowdfunding morphs into a murky offshoot of the much larger finance industry.

“This model is effectively financing without any obligation to the people giving you the money,” Bogaty says. “There’s no accountability.”

Kickstarter is perhaps the best-known platform in the fast-growing constellation of crowdfunding outlets—a catchall term used to describe a range of services, from websites offering backers early access to new products to sites that allow funders to make equity investments in startups and real estate projects. While they all tend to blend together in a loosely regulated pool of alternative finance, the basic idea is to provide an alternative to banks and venture capitalists and offer everyday consumers a quicker, more direct way to save, spend, and invest.

Source: Quartz (link opens in a new window)

crowdfunding, venture capital